Title Page
WP/21/283
IMF Working Paper
Financing for the Post-pandemic Recovery: Developing Domestic Sovereign Debt Markets in Central America
by Jean Francois Clevy, Guilherme Pedras, and Esther Pérez Ruiz
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
INTERNATIONAL MONETARY FUND
Copyright Page
© 2021 International Monetary Fund
WP/21/283
IMF Working Paper
Western Hemisphere Department
Financing for the Post-pandemic Recovery:
Developing Domestic Sovereign Debt Markets in Central America
Prepared by Jean Francois Clevy, Guilherme Pedras, and Esther Pérez Ruiz
Authorized for distribution by Manuela Goretti
December 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
The pandemic has urged countries around the globe to mobilize financing to support the recovery. This is even more relevant in Central America, where the policy response to cushion the pandemic’s economic and social impact has accentuated pre-existing debt vulnerabilities. This paper documents the potential for local currency bond markets to diversify and expand financing for the recovery, lowering bond yields, funding volatility, and exposure to global shocks. The paper further identifies priority actions, both national and regional, to support market development.
JEL Classification Numbers: E44, E62, H63.
Keywords: Bond Markets, Fiscal Deficit, Public Debt, Global Spillovers.
Author’s E-Mail Address: jclevyaguilar@imf.org; gpedras@imf.org; eperezruiz@imf.org
Table of Contents
ABSTRACT
I. INTRODUCTION
II. FINANCING CONDITIONS IN CENTRAL AMERICA DURING THE PANDEMIC
III. BENEFITS FROM FURTHER DEVELOPMENT OF LCBM IN CADR
IV. STATUS OF LCBM DEVELOPMENT IN CADR
V. DOMESTIC SOVEREIGN BOND YIELDS IN CADR: THE ROLE OF LCBM DEVELOPMENT
VI. POLICY IMPLICATIONS
VII. REFERENCES
ANNEXES
I. The LCBM Framework
II. Status of LCBM Development in CADR
III. Panel Unit Root Tests
IV. Main Policy Recommendations for LCBM Development